Tax Incentives for What? The NN Inc. Story in Depth

Here’s a story of a manufacturing company that was founded right here in Johnson City in 1980. Over the following decades, they purchased manufacturing plants throughout North America, Europe, South America, and China, all while leasing space for their headquarters and their 25 HQ employees over on Sunset Drive. This should be a success story, but for residents of Washington County, it’s a cautionary tale, and the tale starts in 2013, when they appointed a new CEO, Rich Holder.

Wheeling & Dealing on Our Dime

That same year, NN Inc. decided they needed bigger headquarters. Buildings aren’t cheap—but that was no problem for Holder: he knew how to play the incentive game: “Holder wasn’t coy about the company’s multiple options, which could have included pulling up stakes with its headquarters.”1

Let’s be real here: pulling up stakes on NN Inc.’s headquarters meant, in real terms, a loss of 25 actual, existing jobs. Now, we don’t want to see any jobs leave the area, but that’s what we were looking at: a potential loss of 25 jobs. You can’t get big taxpayer-funded giveaways if you’re only threatening to take away 25 jobs, though, so Holder created a promise: 175 new, good-paying jobs. This then allowed him—and our government officials—to frame the situation as a potential loss of not 25 but 200 jobs.

So, in February 2014, Mitch Miller, CEO of the Washington County Economic Development Council, put together a set of tax incentives to woo NN Inc. into staying and creating new jobs2,3. Included in the $3.3 million deal were around $900,000 in property tax breaks from Johnson City and Washington County. The remaining money came from a $2 million grant from the state’s FastTrack program and $400,000 from the Tennessee Valley Authority (TVA).

As part of the local agreement, NN Inc. needed to grow from 25 employees to 160 at its new headquarters by the end of 2016. Any position worth $75,000 or more annually would count toward their numbers. In return, they would pay zero property or equipment taxes for the first five years. For the second five, they would pay a portion of their taxes, starting with 10% in year six, until, by year eleven, they were paying the full bill.

“We are delighted that NN has continued to locate their corporate offices in Washington County,” said Washington County Mayor Dan Eldridge when the agreement was signed. “NN is one of our most important corporate citizens and our relationship with them has been outstanding.”4

Where Are the Jobs?

By the end of 2016, per the agreement with the Industrial Development Board, NN Inc. should have had 160 employees: the 25 they started with, plus 135 of the new, good-paying positions they imagined up for us.

As of February 2017, they had created, in fact, just 39 new positions.5

How many of these 39 jobs even went to folks from our city and county is a question worth asking. When NN Inc. opened its new headquarters, it moved functions from other businesses it had acquired to here—along with the people who’d already been doing them: “Key folks are expected to be relocating to Johnson City from the acquired companies.”13 So, how many actual new jobs do we have after subtracting the transfers?

We don’t know.

What we do know is that our leaders sold the deal to us as jobs going to us: When the agreement was signed, Lottie Ryans of the Washington County Economic Development Council said, “NN’s decision to create 200 high-quality jobs in our community is a testament to the quality of our workforce.”6 But what they didn’t do, as far as I know, is get numbers in writing. Nor did they make local hiring for a certain percentage of the jobs a part of the agreement.

Maybe they didn’t think to ask. Or maybe they’re more competent than that: maybe they did ask, realized the answer wouldn’t play well with the public, and decided to bury it.

At any rate, February 2017: We know how many jobs NN Inc. had created at that point not because our elected officials did their jobs of keeping on top of the deals they’d made but because a journalist from the Johnson City Press brought it to their attention. As a result of that—and likely only as a result of that—Johnson City’s Industrial Development Board found itself having to act on NN Inc.’s failure to live up to its agreement.

What the board should have done was sent NN Inc. a bill for property taxes, prorated per the agreement to the shortfall in jobs. That would have meant charging them 68% of their assessed tax ($60,000). That tax money could have then been funneled into local needs, such as teacher salaries, text books, the recent requests for funding to hire full-time workers at county fire departments to cover the hours when volunteers are working their own jobs, expanding water to rural areas, etc.

Instead, the Industrial Development Board, with the backing of the City Commission, extended the deadline to 20197,8. The justification was that the date on the paperwork was wrong, that it should have matched the date on the agreements NN Inc. made with the state.

Let’s look at that a little more closely, though. This agreement was reviewed by at least four lawyers from the city, the Industrial Development Board, and NN Inc. It was reviewed and voted on by the City Commission and, ostensibly, by the signatories at NN Inc. Prior to the vote, City Commissioner (then mayor) Van Brocklin, even specifically asked about the timeframe given in the agreement. Yes, mistakes do happen, but the economic consequences of this are being borne not by the City Commission, the Industrial Development Board, the Washington County Economic Development Council, or NN Inc.; the economic consequences are being borne by Johnson City and Washington County residents, who had no say in either the deal or the rewriting of the deal.

So, that’s what our officials did—they gave NN Inc. a free pass on top of their free money—and it all got settled—or “settled.”

But the effrontery didn’t end there.

Meanwhile Over in Unicoi…

Just a few months after winning a free pass from Washington County and Johnson City, NN Inc. sold off its Mountain City and Erwin manufacturing plants9—to a company, Tsubaki Nakashima, that already had a history of putting good people out of work in Erwin. Tsubaki had purchased the Hoover Precision Products plant in Erwin a while back, and in 2007 they shut it down, at a loss to our area of 80 unionized jobs—80 jobs people could actually earn a living off of.10

Shortly after closing the plant, Tsubaki then executed an option on a lease on the property with Unicoi County that allowed them to purchase it for just $3,600 plus some back rent.

A year later, they sold that property to a developer for $825,000. That property’s been “developed” into fast food restaurants—Bojangles, Pal’s, Taco Bell—that provide jobs no one can actually live on.

And now Tsubaki plans to co-locate at the SunTrust building NN Inc. got its tax breaks on. They haven’t yet, as far as I can tell, and who knows whether they actually will, or whether that was just more imaginary promises.

If they do move here, how long is it going to be before they’re wrangling for tax deals, too?

Speaking of deals: NN Inc. was working with Unicoi’s Economic Development people on a deal for a “showcase” manufacturing facility in Unicoi11 before it spun around and sold off those assets to Tsubaki. NN Inc., under CEO Rich Holder, has apparently decided its growth strategy is to game the system every which way it can. It’s frustrating—and it’s also by no means at all uncommon.

Selling off parts of its company here would turn out to just be NN Inc.’s first step out the door.

So Long and Thanks for All the Cash

Back while the city was bending over backwards to extend NN Inc.’s job target deadline so that NN Inc. wouldn’t have to contribute any taxes to our area, NN Inc. was itself busy brokering a deal in Charlotte, North Carolina, for another $4 million or so in new tax break deals—in exchange for moving its headquarters out of Johnson City and bringing the people of Charlotte 200 jobs worth $139,000/year each.12 (That’s $64,000 more than they offered our people.)

Charlotte was also smart enough to get into their agreement a promise that 175 of the jobs NN Inc. brings will be filled by locals.

Meanwhile, our good officials here, the ones who brokered the NN Inc. deal in the first place, are still confident that we’ll get our promised 200 jobs.

“Our opinion on the tax agreement is that as long as they meet the employment numbers and salary numbers outlined, there will be no impact,” says Mitch Miller.13 He also says that the jobs NN Inc. is planning on keeping here, with their shared services division, are “high paying positions,” and that any positions paying over $27.05 per hour that include benefits worth at least 30 percent of the annual wage “will qualify towards meeting their job numbers.”

$27.05 is $56k/year if you include paid vacation time. Since the day Miller made his statement, NN Inc. have advertised on its employment opportunities page all of seven positions for Johnson City, only two of which, “assistant manager/manager, shared services” and “senior financial reporting accountant,” look like they might make it to $56k.As for the other positions: The national average salary for an accounts receivable collections specialist (a “temp to hire” position, according to their ad) is $38.5k. For a payroll specialist it’s $39k. For an accounts payable specialist it’s $41k. Benefits specialist: $49k. Compensation and benefits representative: $38k. Remember: these are national averages, and we aren’t New York City (or Charlotte), so it’s not likely an accounts payable specialist is going to be hired on in Johnson City at a rate $15k higher than the average.

NN Inc. didn’t create 160 jobs while its headquarters were actually located here, yet we’re expected to have faith that while they’re moving their headquarters to another state and hiring 175 new people over in that state—while they’re moving at least 25 of the 64 jobs here over to there—somehow they’re still going to manage to create plenty of jobs in Washington County by the end of next year…while advertising a position or two a month.

Are you buying it?

Why Businessmen Fail Us When They Get in Government

A lot of times, folks like the idea of businessmen running government: we figure since they know how to run a business, they should know how to run a city, county, state, or even the country, right? It’s one of those ideas that makes sense on the surface, but when you look around, the fact is that businessmen aren’t actually running governments like their own businesses.

At all.

Any business run the way businessmen run the government would be run into the ground.

Imagine you convince a business owner that you’re going to make them 155 brand new widgets. You’ve totally sold him on it, and you both sign a contract—after having lawyers on both sides look over it—that says you’ll have those widgets done in two years.

Two years go by, and you turn in 39 widgets.

What do you think happens in the real business world? It’s not “Oh, whoops, let me extend your deadline another three years.” You don’t even have to be a businessman to know the truth of that, do you?

What would happen if you, as an employee, only turned in 25% of your work? That is what NN Inc. did when they created all of 39 new (or “new”) jobs. 25%, and the people running our government were a-okay with it. Take a look at these quotes from a September 22, 2017 JC Press article, after the press brought the problem into the open:

“NN has been a great corporate citizen to Johnson City and the region.” — Mitch Miller, Washington County Economic Development Council13

“I wish them well.” — David Tomita, Johnson City Mayor13

“It’s bittersweet they’re moving their corporate headquarters, but I’m proud they’ve been able to grow to the point that they need to be centrally located to where they’ll have a national transportation hub.” — Pete Peterson, City Manager, Johnson City13

When’s the last time your boss said that about anyone who did only 25% of their job?

Our elected leaders burdened our residents with tax abatements for the sake of imaginary jobs that have yet to appear. And when those jobs didn’t appear by the deadline all signatories agreed to, our officials didn’t even give NN Inc. a slap on the wrist: they gave them three more years to ride for free.

What we need in office is people who care about the county, and the city, and the state—and the country—in the same way that businessmen care about their actual businesses. It’s the caring that leads to good guidance. Except, with a government your responsibility isn’t widgets; it’s people’s well-being.

The Johnson City Commission, Johnson City’s Industrial Development Board, and the Washington County Economic Development Council sold out the people of Johnson City and the people of Washington County when they made a hasty, not-well-thought-out deal. I want to know what they actually cared about when they were signing that agreement—or last spring, when they were amending it in NN Inc.’s—not the people’s—favor.

What kind of due diligence did they do? Where did their confidence come from, that NN Inc., under a brand new CEO, would live up to its end of the bargain? Did they care whether NN Inc. would follow through on its promise? Was it that they actually never really believed the numbers were attainable but, for whatever reason, were willing to play along anyway?

Also, did they think to ask who those jobs would go to? Apparently Charlotte, North Carolina, did, because they at least got a promise from NN Inc. that 175 of the 200 jobs would be filled from the local area.14 I mean…for whatever a promise is worth from that company.

What it looks like is that our elected officials cared about making a deal. What they didn’t care about was how the deal would affect the people they were ultimately responsible for and accountable to. And the people affected by it are all of us here in Washington County. NN Inc. continues to not pay property or equipment taxes because the IDB “believes” they will still make good on their jobs promise—even while the company’s packing boxes to move out of state.

We need our elected officials to be stewards, not suck-ups.

We need elected officials who will safeguard our people and our collective assets, not leave a maelstrom of bad deals and hollow promises swirling in their wake.

Next time you’re thinking about a candidate’s qualifications for office, ask yourself what they care about. Who they care about. Ask yourself how they have shown where their values are.

Shout out to Nathan Baker for his excellent investigative reporting on this story last year; to the Johnson City Press for putting the coverage out there; to campaign team member Zoe Wells for shepherding this blog post through research, drafts, and execution; and to the rest of the campaign team for their proofreading work and for further developing the discussion as we made our way to a final draft. Success is always built on a collective effort, partly through people’s work on a given project (as with the creation of this blog post) and partly through the structures and groundwork set down by others beforehand (such as the reporting Nathan Baker did that made this blog post possible, the Press’s publication of that work, WordPress.org’s development of the blogging system you’re reading this post on, the government-funded research projects that developed the internet you accessed this site through, and so on. No one is an island—especially not me).

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Article Sources:

  1. http://bjournal.com/foot-on-the-throttle-nn-inc-prepares-for-move-to-new-corporate-hq/
  2. http://www.johnsoncitypress.com/gallery/miller-nn-inc-project-could-lead-to-200-new-jobs
  3. http://www.johnsoncitypress.com/gallery/Update-NN-Inc-to-offer-jobs-starting-at-75K
  4. https://www.prnewswire.com/news-releases/nn-inc-announces-new-corporate-headquarters-location-in-johnson-city-266037411.html
  5. http://www.johnsoncitypress.com/Business/2017/02/16/Johnson-City-board-recommends-changing.html?ci=stream&lp=8&p=1
  6. https://www.prnewswire.com/news-releases/nn-inc-announces-new-corporate-headquarters-location-in-johnson-city-266037411.html
  7. http://www.johnsoncitypress.com/Business/2017/02/16/Johnson-City-board-recommends-changing.html?ci=stream&lp=8&p=1
  8. http://www.johnsoncitypress.com/Business/2017/04/17/City-Commission-2
  9. http://www.johnsoncitypress.com/Business/2017/07/10/UPDATE-NN-Inc-sells-Erwin-Mountain-City-plants-new-company-to-locate-headquarters-in-Johnson-City
  10. http://www.johnsoncitypress.com/Business/2017/07/15/Company-buying-Erwin-plant-closed-Hoover-plant-10-years-ago-mayor-says-company-now-different-stronger
  11. http://www.johnsoncitypress.com/Local/2016/03/20/NN-Inc-looking-to-replace-its-Erwin-plant-with-show-place-facility.html?ci=stream&lp=9&p=1
  12. http://www.charlotteobserver.com/news/business/article174811336.html
  13. http://www.johnsoncitypress.com/Business/2017/09/22/NN-Inc-to-move-headquarters-to-Charlotte
  14. https://www.bizjournals.com/charlotte/news/2017/09/22/tennessee-manufacturer-headed-to-charlotte-with.html